KFH to start $224m rights issue

Kuwait, June 2, 2013

Kuwait Finance House (KFH), the country's largest Islamic bank, will begin a 64 million dinars ($223.9 million) capital increase program on Wednesday to fund its expansion and strengthen its balance sheet.

The sale of 639 million new shares in the bank will run for two weeks and will boost its capital by 20 percent, a statement from the bank said on Sunday.

Kuwaiti banks have suffered since the global financial crisis because of exposures to the local real estate and stock market whose values have dropped sharply. Exposure to local investment firms who borrowed heavily in the boom years to finance activity in both areas also hit bank balance sheets.

The rights issue, a sale of shares to existing holders, will be priced at 0.5 dinars per share, a 35.9 percent discount to the closing price at the end of last week. The ratio at which existing shareholders can purchase new shares was not disclosed.

KFH shares closed down 1.3 percent at 0.77 dinars on Sunday.

The new capital will be used to strengthen its balance sheet and fund expansion of both its global footprint and the products it offers, the statement said.

The sale would also push its Tier 1 ratio - the key measure of a bank's financial health - towards its 17 percent target for the end of 2013. It currently stands at 13.6 percent, below the 15.5 percent average for the Kuwait banking sector, according to ratings agency Moody's.

Last month, Moody's downgraded KFH by one notch to A1 on the back of continuing pressure on asset quality, an increasing reliance on volatile investment income for revenue and the bank's complex organisational structure.

KFH said in November that it wanted to increase its capital as part of the bank's five-year strategic plan, with shareholders giving assent to the move in April. - Reuters